October 17, 2013 11:25 am

Twitter move highlights high-stakes game between Nasdaq and NYSE

Traders work on the floor of the New York Stock Exchange©Getty

For NYSE Euronext, Twitter’s decision this week to list its shares on its New York Stock Exchange could not have come at a better time.

Apart from boasting rights, the $1bn Twitter initial public offering enhances NYSE’s technology franchise and comes as 83 companies have raised $32bn on the exchange this year, close to triple the amount raised by the 87 companies on Nasdaq.

Landing Twitter came after a hard-fought battle between the exchanges, with analysts highlighting its ability to strengthen NYSE’s reputation.

The exchange operator’s $10bn acquisition by IntercontinentalExchange is set to close early next month and scoring the social media company’s IPO bolsters its claim to running a differentiated listings business from its rival Nasdaq.

While the future of NYSE’s European business is uncertain, the US equities business and its historic Manhattan location is very much part of ICE’s plans.

But while the exchange benefits from membership, trading and listing fees, the contribution of a single company makes little difference to its annual revenues or its competition with its rival. Instead, landing a high-profile name to list on an exchange in the US is mainly a matter of prestige.

Nevertheless, companies are offered a clear choice when presented with the two main US exchanges. Listing fees are typically lower on Nasdaq, reflecting its history as the choice for younger companies with less available funds. NYSE fees have historically been higher, in part as it has attracted more of the heavyweights of industrial and corporate America.

From a branding perspective, NYSE offers executives a chance to ring the symbolic bell from the floor of an exchange, a factor that may sway some. However, Nasdaq can offer issuers advertising in the heart of Times Square, a prime spot to reach a large audience in New York.

Nasdaq is stronger on services to issuers such as providing corporate communication tools and analysis on how a company’s stock and its peers are trading, according to Patrick Healy, chief executive of Issuer Advisory Group.

A key difference is the way an IPO auction is run, a feature of the listings business that came under scrutiny when the start of trading in Facebook shares was mired by problems with Nasdaq’s systems.

A NYSE IPO auction has a human element as floor traders work with bankers to determine the opening price for shares, while Nasdaq relies more on computers to launch a new listing. Nasdaq recently added an “auction officer” to liaise with underwriters.

“I think it’s one of the most important things to a company,” says a senior equity capital markets banker, who declined to be named because he works with both exchanges. “If you actually talk to traders they would tell you they would rather open with the NYSE all day long. But plenty of companies are picking Nasdaq because they don’t need that level of control.”

NYSE has been increasingly successful in attracting technology companies in recent years, a territory once considered undisputedly Nasdaq’s. In 2006, NYSE had less than 10 per cent of all technology IPOs but has grown its market share almost fivefold in recent years. So far this year, 16 technology or internet related companies have listed on each exchange, according to data from Dealogic.

Companies such as LinkedIn, Yelp, and Pandora have chosen NYSE and the shift in emphasis was underlined over the summer when Oracle, the software company, switched from Nasdaq to NYSE.

Nasdaq still remains highly-desirable, winning some of the largest Web 2.0 companies including Facebook and Zynga. It has also managed to attract large-cap companies from NYSE such as Viacom, the media company, and Marriott, the hotel group.

Overall, 87 companies have raised $12.3bn in Nasdaq listing versus 83 companies raising $32bn on NYSE.

As NYSE looks to build off its recent win, Mr Healy of Issuer Advisory wonders whether the $450m in synergies ICE has said it could achieve from the merger will affect its listings business. He asks: “How deep is [ICE’s planned] cost cut going to be and is it going to affect spending on the issuer community?”

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